Inflation in Euro Zone Falls, and a 12% Jobless Rate Doesn’t Budge

Image

A shop window in Athens. The inflation rate came in lower than expected in January, raising fears of deflation and increasing pressure for economic stimulus.CreditAris Messinis/Agence France-Presse — Getty Images

BRUSSELS — Europe’s labor market remained in the doldrums in December, while the inflation rate ticked back down to the same level that recently led the European Central Bank to cut interest rates, official data showed on Friday. The reports suggested that the central bank would be under pressure to provide more monetary stimulus to keep a nascent recovery alive.

The latest batch of data added to nervousness in the markets, which have been more volatile on concerns about currencies in emerging markets like Turkey and Argentina.

The jobless rate in the euro zone was 12 percent, unchanged since October after a revision of previous months’ data, Eurostat, the statistical agency of the European Union, reported from Luxembourg.

The inflation rate came in at 0.7 percent in January, Eurostat said in its initial estimate, significantly lower than economists had expected and slowing from 0.8 percent in December. The core rate, which strips out energy, food, alcohol and tobacco, was 0.8 percent, up from 0.7 percent in December.

Mario Draghi, the president of the European Central Bank, and his colleagues on the central bank’s Governing Council, surprised investors in November by cutting the euro zone’s main interest rate by a quarter of a point to a record low of 0.25 percent, in the face of concerns that Europe might be headed toward a Japan-style deflationary quagmire. The central bank acted after the euro zone inflation rate fell to 0.7 percent. The bank tries to hold inflation at just below 2 percent.

Some economists have argued that falling inflation in the euro zone, coming after five years of recession or very slow growth, means that the currency bloc faces an acute risk of deflation — a sustained and broad fall in prices that can destroy the profits of companies and the jobs they provide.

Other economists say they believe that the slowing inflation is merely a sign that wages are falling in countries like Spain and Greece, where labor costs had become too high for companies to compete in the international marketplace.

Mr. Draghi, who has cautioned that the euro crisis will not be over until the labor market begins to recover, has more recently sought to play down the risk of deflation, perhaps to hold in reserve the possibility of a last major rate cut, to zero.

The 0.7 percent inflation rate most likely came as a surprise to the European Central Bank. Mr. Draghi had played down the significance of the 0.8 percent December figure, saying that a statistical quirk in the German services data for that month had pushed it lower and that January would probably show more upward pressure on prices.

Despite continuing deflation worries, Carsten Brzeski, an economist at ING Group, predicted that the central bank would take no additional action when its Governing Council met on Thursday. For one thing, he noted, “the macroeconomic situation hasn’t changed dramatically” since the council last met in early January, and there were enough hopeful signs to allow policy makers to bide their time.

Also, Mr. Brzeski said, the central bank was awaiting a ruling by a top German court on the constitutionality of its bond-buying program, “and they don’t want to engage in any tricky stuff before the verdict.”

The specter of deflation poses a problem for a central bank, because nominal interest rates, the usual tool for addressing price levels, cannot go below zero.

Mr. Draghi has suggested that the central bank was considering unconventional tools, including instituting negative deposit rates, in effect penalizing financial institutions for keeping funds at the bank in the hope that it would lead them to put more money into the economy.

The central bank on Wednesday reported slowing growth in the broad money supply and a decline in loans to the private sector, indicating that credit is not reaching the real economy.

A report on Friday from the German Federal Statistical Office showed that retail sales in Germany fell sharply in December, dropping 2.5 percent after a 0.9 percent rise in November.

After Friday’s reports, European stocks trimmed earlier losses but ended the day down.

Other recent data have painted a more positive picture of the economic outlook. Consumer and business confidence have been relatively strong, and a January survey of European purchasing managers suggested industrial activity in the euro zone was at its highest level since mid-2011.

On the jobs front, the unemployment rate for the entire 28-nation European Union fell slightly, to 10.7 percent in December from 10.8 percent a month earlier. Eurostat estimated that 26.2 million people in the European Union were looking for work last month.

“There’s some stabilization in the unemployment rate, so at least it’s not getting worse,” Mr. Brzeski said. “But this is a strong reminder that this a very fragile recovery, one that is anything but self-sustaining.”

He noted that the labor market was a lagging indicator, meaning that hiring tended to pick up only after the economy was on a sound footing.

“We need at least 1 percent to 2 percent annualized growth to create jobs,” he said, “and we just haven’t been getting it.”

A version of this article appears in print on , on Page B3 of the New York edition with the headline: Inflation in Euro Zone Falls, and a 12% Jobless Rate Doesn’t Budge. Order Reprints | Today’s Paper | Subscribe

The All-New DealBook

Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them.

Please verify you’re not a robot by clicking the box.

Invalid email address. Please re-enter.

You must select a newsletter to subscribe to.

* Required field

You agree to receive occasional updates and special offers for The New York Times products and services.